Scariest numbers from New Jersey’s 2015 Pension Reports

You might have your own but based on this spreadsheet, created by pulling off pertinent valuation data from each of the July 1, 2015 actuarial reports for the New Jersey retirement system with tabs for similar data going back to 2012 and 2000, here are mine:

which includes about $25 billion in self-valued ‘alternative’ investments:

there are not enough inflated assets to cover the undervalued benefits for current retirees ALONE.

442,827 public employees have nothing in their pensions but IOUs and their $1.9 billion in annual contributions (and roughly $30 billion in accrued contributions) are going into a black hole that Christie is not about to plug.*

.

.

.

* This is a long overdue update of a 2013 blog that made exactly the same point. Please, play around with the spreadsheet and find your own scary numbers. It is particularly striking that according to the 7/1/2000 reports there was less than one-third of the money being paid out to retirees as there was in 2015 but the asset values are about the same. In the most basic bit of actuarial ball-parking for defined benefit plans, assuming no plan termination or radical changes in the census, the asset values should have followed along and been up in the $210,000 range now. They’re not.

Another interesting change is in the average annuity factors for retiree payouts which was 10.34 in 2000 and 9.41 in 2015. The elimination of all future COLAs in the assumptions would account for some of the drop but not all of it when you consider mortality improvements and all the younger retirees with higher benefits.

What a useless Group GASB is ……… that “official” Gov’t entity financial Reports can ignore the Financial Standards (that supposedly) govern their operation.

If a Public Corporation ignored FASB, lawsuits would fly, heads would roll, and jail occupancy would likely rise.

Taxpayers are so incredibly sucked by this entire structure ….which promises WAY too much, materially understates the true cost (and then only funds a small share of that low-balled cost BECAUSE it it too generous to actually pay for), puts in place law that prevent even FUTURE service reductions (that are both legal and routine in Private Sector pension Plans), and lets judges with a conflict of interest (by being participants in such Plans) adjudicate legitimate challenges to these grossly excessive promises.

Taxpayer have WAY more than the moral justification and legitimate reasons to renege on MORE THAN 50% of these absurd promised pensions (AND benefits).

John, you often talk about returning the members contributions before closing a fund. Under what circumstances could this happen, legal and otherwise? I ask because on the PERS report for the state fund, page 19:

“As of June 30, 2015, the ratio of market value of assets to the prior year’s benefit payment is 5.8. This is an approximate indication of the number of years that the assets can cover benefit payments, excluding future State and member contributions, and investment income. This ratio decreased by 10.8% from the previous year’s ratio of 6.5. If ASF assets are excluded, since they represent accumulated contributions from active and inactive members, the ratio is 2.0.”

Does this mean about 15 months before they start spending the member contributions? And a drop-dead date of about 2020?

It’s academic. NJ will pay as little as they can get away with, put in as little as they can get away with, and use whatever money is available to make the payments they can’t walk away from. In the private sector this happened around 10-20 years ago for a lot of companies with Defined Benefit plans where the principals froze accruals and developed plans to pay down the underfunding so that pension debt wouldn’t sink the company. There is no such incentive for politicians and public plans.

As for the value of those employee contributions, it’s hard to tell based on what we have. In the Teachers report (page 6) it lists:

That’s about 43% of assets which the reports totaled at about $82 billion. That comes to $36 billion in accumulated employee contributions as of 7/1/15 but it’s not clear if retirees who have not gotten back all their contributions are included. In any case if that $35 billion were returned to active participants and alternative investments were valued honestly there are 4 years of payments left even with new money coming in and without COLAs (3 years with COLAs back).

“In the private sector this happened around 10-20 years ago for a lot of companies with Defined Benefit plans where the principals froze accruals and developed plans to pay down the underfunding so that pension debt wouldn’t sink the company. There is no such incentive for politicians and public plans.”

FREEZING NJ’s Public Sector Plans would at at least stop ADDITIONAL future service accruals from contributing to the growing financial hole we are now in.

Impossible to tell. Since those investments pay higher fees the higher the nominal earnings the values start off inflated and if they’re worth $25 billion on paper, it’s probably closer to $15 billion, especially if they have to be liquidated sooner than anticipated to pay people.

John:
Since there is a financial problem nationally with pension funding, would a single payer health care system be a monetary help to the pension systems, if the previous health care dollars were funneled directly into the pensions?
Colorado and Massachusetts are floating this idea. Of course a Hillary presidency would kill this plan in its infancy due to her massive payoffs from Big Pharma.
The Koch brothers also would not stand for it. They are already lobbying the mentally impaired voters in Colorado.
Eric

Never going to happen. Insurance companies are in control and they’re not about to dismantle their money machine (even if the politicians they buy turn on them) no matter how many people it kills. This was the issue (repeal McCarran-Ferguson) that got me writing about 30 years ago and nothing has changed.

How true, you hit the nail on the head. It’s not about doing what’s right but rather what’s easy. Sure we’re a so called “free market” society but does anybody have any doubt the game is seriously rigged? And the public Unions with their DBP is just a small tip of the iceberg. The underlying socio and economic problems plaguing our society will not improve unless we have sweeping Wall Street, Health Care, Energy, and Higher Education reform – the four big mega drains on our Country.

The other problem with Alternative Investments is they don’t trade on the secondary market (ie with a Bid and an Ask). The AI will self report a price. Let me repeat that. There is nobody anywhere who needs to attribute a value to an AI, the AI will tell you what it is worth. There is an audit called the PCOAB that they can pay for and have an accountant determine a price but this is an expense (10-30K depending on the size) and entirely up to the AI. Its worth is only what they say it is. Now for sure, there has to be some underlying assets they have invested in but that is also usually speculative (options contracts, futures, real estate, Canadian gold coins, Persian carpets, art, a parking lot…..it can be anything).

The end game is this.
– make unions out to be the bad guy
– underfund pensions so they are actually impossible to properly fund
– dump the pension with the PBGC
– dump the pension on the social security administration
– tell the taxpayers they can either each kick in $50K to fund pensions or let it go bust.

Taxpayers are already at the point where we say “these people expect me to fund their retirement and I can’t even afford my own”.

This is not going to end well, I say this out of no glee or smugness. All public sector employees need to immediately put money in an IRA, Roth IRA and/or 401a.

According to census figures total employment in Union County is at 202,372. According to New Jersey pension records 20,878 of those jobs are in government. Theoretically then 10% of the members of the Union County Democratic Committee should also be working in government to be representative of the general population. It’s not even close. When […]